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Reconsidering the Mandate of the Audit Committee: Evidence from Corporate Governance in Israel

International Corporate Governance and Regulation

ISBN: 978-1-78756-536-4, eISBN: 978-1-78756-535-7

ISSN: 1569-3732

Publication date: 1 November 2018


We investigate the association between attributes of the audit committee of a firm and the likelihood of negative events occurring in the firm’s life in Israel. The mandate of the audit committee in Israel is substantially different from its mandate in the US. The responsibilities of the committee in the US are divided between two committees in Israel, one of which deals with reviewing the financial statements and the other one, titled “audit committee,” is in charge of the remaining tasks of the US-type audit committee. This allows us a unique opportunity to focus on the roles of the audit committee other than reviewing the financial statements. Using hand-collected data on firms traded on Tel Aviv Stock Exchange in 2010–2014, we find that the larger the audit committee size, the larger the likelihood of negative events, consistent with the cumbersome workings and potential conflicts of interests characterizing a large committee. The percentage of directors with accounting and financial expertise on the audit committee is associated with a lower likelihood of negative events, in line with the value of such experts in tasks beyond reviewing the financial statements. The fraction of independent directors on the audit committee is not found to be significantly related to the likelihood of negative events. This is consistent with the notion that some independent directors are independent in form but not necessarily in substance, which is surprising in light of the comprehensive regulation regarding audit committee independence imposed by the Israeli regulator.




We wish to thank Avi Wohl for valuable feedback and advice. We are indebted to John Wald for invaluable help. We appreciate research assistantship by Omri Zuckerstein. We would also like to thank Doron Cohen of Grant Thornton and Kobi Avramov, Head of the Research Unit at Tel Aviv Stock Exchange for very useful information. We acknowledge the financial support from the Academic College of Tel-Aviv Yaffo.


Berkman, O. and Zuta, S.D. (2018), "Reconsidering the Mandate of the Audit Committee: Evidence from Corporate Governance in Israel", International Corporate Governance and Regulation (Advances in Financial Economics, Vol. 20), Emerald Publishing Limited, Bingley, pp. 189-209.



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